Michael Madigan tax clients unscathed in foreclosure debate

As home foreclosures tear apart neighborhoods throughout the state, an annual battle plays out in Springfield between the banking industry and community activists over how to deal with the damage.

The banks always emerge largely unscathed. It happened again last week as the spring legislative session drew to a close — ending efforts to make banks pay millions of dollars for upkeep on abandoned properties and for homeowner counseling.

Illinois House Speaker Michael Madigan says lawmakers are repeatedly outmaneuvered by the powerful banking lobby. But he doesn't mention that some of those same banks — from national chains to community lenders — are clients of his private law firm.

In Madigan's dual roles as the state's most powerful lawmaker and name partner in one of Chicago's most successful property tax firms, he frequently makes public decisions that affect the bottom line of his private clients.

It's a confluence of interests that many involved in the banking fight — including housing advocates and Democratic lawmakers — said they didn't know about.

"It undermines the process. I don't think he should be involved," said Ernie Lukasik, a coordinator with the Northwest Side Housing Center, a nonprofit group that helps homeowners mediate foreclosure cases.

"It's a clear conflict," Lukasik said. "Here he is making laws for the banks while he is working for them."

Madigan refused to be interviewed, but said through a spokesman he has no conflict of interest because legislation he's involved with affects entire industries, such as banking, and not just his clients.

Though many consider Madigan all-powerful after nearly three decades as speaker, spokesman Steve Brown said Madigan's efforts to make predatory lenders and their allies "accountable for the damage they've done" have been stymied by the influential banking lobby.

"We've not been successful, and in some cases, the predators have stopped what Mike Madigan and others have tried to do," Brown said in comments shortly before the session ended. "In some cases, they've watered things down. But the fight continues."

Madigan has previously said he abides by a "personal code of conduct" that includes not offering state benefits to gain clients and recusing himself from considering a bill if a client "expresses an interest in legislation such as to create a conflict of interest."

Ethics experts said neither Madigan's personal code nor Illinois' weak ethics law addresses the potential conflict created by the intersection of the speaker's personal and private interests.

"Someone with a special interest could pour favors on the speaker without explicitly saying, 'By the way, this is for your support'. You shouldn't have to show it's a bribe for it to be prohibited by a code of conduct," said Richard W. Miller, director of the Program of Ethics and Public Life at Cornell University.

"There is also nothing in the speaker's code of conduct that stands in the way of his involvement in a matter where he has powerful personal interests so long as the company that benefits doesn't request it," Miller said.

The Tribune has previously reported that clients of the speaker's tax law firm have benefited from state projects he helped secure; on Sunday, the newspaper disclosed that Madigan's actions on the state's Medicaid program for the poor also affected law clients who put money in his pocket.

Madigan controls the House so tightly he has been nicknamed "The Velvet Hammer" for his ability to bend lawmakers to his will. The speaker's decisions and political brokering are almost always made in secret, as is most of the political maneuvering in Springfield.

State lawmakers wrote themselves out of the transparency laws that govern the rest of state government, and Madigan has refused Tribune requests for any documents related to his actions.

Madigan typically plays his position so close to the vest in Springfield that few know his motives until bills are on their way through the House. Amid that mystique, Madigan played a central role in the outcome of several bills that dealt with foreclosure issues and the banking industry this session.

One bill sponsored by state Rep. Karen Yarbrough, D-Maywood, would have hit both big and small banks by allowing municipalities to force banks to maintain abandoned homes. Supporters said it would help address a blight of weed-and-trash-strewn yards and havens for dangerous derelicts.

Yarbrough said she had high hopes that legislation would pass but quickly learned there wasn't enough support to get the bill passed in the House.

In addition to stopping that legislation, the other priority for the banking industry this legislative session was to pass a measure that would allow them to much more quickly foreclose on and dump abandoned properties from their books. In an effort to win over critics, the banks offered to pay more to help cities around the state maintain abandoned homes.

The bank-backed bill passed the Senate after weeks of closed-door meetings but stalled in the House Rules Committee. Lawmakers and advocates who opposed it credited Madigan, saying he didn't think it raised enough money from big banks for the foreclosure funds.

Then, on the final day of the session, Yarbrough countered with her own version of the fast-track bill. It would raise twice the money — an estimated $50 million — to help municipalities and fund foreclosure counseling services. But it would only impose higher fees on the very largest banks, which have at least $10 billion in assets.

Smaller community banks and credit unions would be spared, and their lobbying association joined housing advocates in supporting it. The Illinois Bankers Association, which was representing the interests of bigger banks, opposed it.

Yarbrough said Madigan, who voted for the bill, provided counsel and was involved in the process nearly the entire time. "He held my hand all the way," she said.

She said she wasn't aware it helped some Madigan banking clients and said Madigan didn't come up with the idea to exclude community banks from the bill. She said those ideas came from housing advocates who were assisting her with the bill and added that Madigan was an advocate for her concerns this session.

The changes were enough, and the House passed the bill 67-48 late Thursday on the last night of the spring session. Yarbrough said she was happy to finally get some form of foreclosure help through the chamber.

But the bill's supporters were disappointed hours later in the Senate. Sen. Jacqueline Collins, D-Chicago, Yarbrough's co-sponsor, was trying to put together a tenuous 30-vote majority needed to pass the bill. But her hopes evaporated as the clock ticked past midnight and she didn't call for a vote.

Collins attributed the loss to the influence of the banking lobby and the reticence of her colleagues to push back. Collins said she wasn't aware Madigan's law firm represents banks.

"He's smart enough to know what is legal and not legal. I don't think he would make that mistake," Collins said. "However, I think perceptions are everything."

She said she also wasn't aware her own Democratic leader, Senate President John Cullerton, D-Chicago, works at a law firm that list banks as clients.

Cullerton works at Thompson Coburn LLP, an international firm of more than 300 lawyers. Cullerton states he only works on issues of charitable organizations and not-for-profits. Madigan & Getzendanner has only six attorneys, including Madigan's partner, Vincent "Bud" Getzendanner.

Madigan's firm has for years represented a number of financial institutions, saving banks millions of dollars by appealing their property tax assessments in Cook County and the suburbs. The firm has filed property tax appeals for some of the state's biggest banks, such as Bank of America, as well as smaller community banks such as Bridgeview Bank and Republic Bank, public records show.

A spokeswoman for Bank of America declined to comment, except to say that an outside firm hired Madigan's law firm. Officials with Republic declined to comment. Officials with Bridgeview and other banks on Madigan's client list did not return repeated calls for comment.

It wasn't the first time some of Madigan's clients got the better of the foreclosure prevention forces.

A similar measure to charge banks fees to fund foreclosure outreach efforts was watered down by the banking industry in 2010 after top Madigan lieutenants took control of the negotiations.

As that 2010 legislative session was coming to a close, Yarbrough and housing advocates were surprised to learn their proposal had been replaced by a compromise bill written by the banking industry. It was sponsored by a different lawmaker, Rep. Joe Lyons, D-Chicago, a member of Madigan's leadership team.

The Lyons bill eliminated the requirement that banks pay a fee for buying property at a judicial sale, and reduced the fee for everyone else.

Yarbrough couldn't believe it as the House leadership team moved the bill for a roll call vote.

"Wow," the stunned lawmaker said when Lyons confirmed that banks wouldn't be charged the fee during floor debate. "So … so, the fee … the fee is awfully low and it's not going to apply to 95 percent of the cases.

"Why is it that when we're dealing with these huge problems, we don't really address the real issue?" Yarbrough asked, according to House transcript of the action. "I don't know how I'm going to go home this weekend and once again done nothing for my constituents in my communities that are suffering so terribly with these foreclosures."

Community activists hoped their plan would raise millions of dollars a year, but the fund currently has a little more than $166,000.

Lyons told the Tribune the bill was the best version that could pass: "I know Karen Yarborough was against it, but the speaker's staff was trying to get something that would pass."

Lyons said he never spoke directly to the speaker about the legislation and was unaware that Madigan's law firm does tax work for banks that stood to benefit. "If there was any conflict of interest, he would recuse himself from any kind of vote," Lyons said.

Since 2003, Madigan has voted "present" on more than a dozen banking-related pieces of legislation, according to public records. He has not offered any rationale for those votes.

Brown noted that Madigan has pushed legislation that the banking industry opposed that required individuals with low credit scores or other criteria in neighborhoods on Chicago's Southwest and West sides to receive financial advice before a mortgage application could be completed.

The controversial legislation was eventually suspended by then-Gov. Rod Blagojevich amid claims by critics that it was a form of redlining that hurt those areas by dramatically slowing the availability of mortgages in those mostly minority areas.

David H. Laufman, a Washington ethics expert who served as investigative counsel to the U.S. House Ethics Committee, noted that federal ethics law would not allow Madigan to influence legislation in matters where he has a personal financial interest, whether or not the bill is good public policy.

But without adequate disclosure laws, and a clear definition of what constitutes a conflict, "it seems to me it is open season for him to do what he is doing," Laufman said.